tv On the Move Bloomberg October 31, 2014 4:00am-5:01am EDT
best day versus the dollar since 1999. rbs, happy news for them. return to profit. they smash estimates with a profit just under 900 million pounds. what does it mean for the open? it really is all about the bank of japan. extra stimulus. footie 100 futures up -- ftse 100 futures up. dax futures up 194 points. we will break down all this news a little later on. >> we are already up 1% on the stoxx 600. it is going to go higher, it seems. haseems to be japan that set of fire underneath stocks this morning. it helped asia, likely to help europe as well. france up almost 2%. of course, japan unexpectedly boosting stimulus. already injecting unprecedented
amounts of money into the monetary stimulus, but only three of 32 economists saw this one coming. now it is going to be ¥80 trillion per year that the japanese central bank is injecting. about trying to foster that inflation, that 2% target they have. we look at what it did to asia. it ignited asian equities. hang seng up more than 1%. nikkei up almost 5%. nikkei, highest in seven years. let's see what it did to the yen. we saw the yen really see a six-year low weakness, that is helping exporters of course. all of this helped by our rather tasty bit of gdp data yesterday. that helped the dollar. let's look at what is happening to the dollar-ruble.
we are expecting the central bank of russia to hike interest rates later. could they hike by half offer percent -- half a percent? that is the consensus. today, dollar is gaining against the ruble. yesterday was a stellar day for the ruble. saw strengthening against the dollar. the dollar lost 3% against the ruble yesterday. the dollar getting back some of its gains today. rate hike? that what will that do to the ruble later? let's move away from these markets. let's move on to stocks. had still a few fair bits of earnings coming out today. rbs up 3% for the first time in three years, a profit in the third quarter for rbs. u.k. data has been helping the economy. those funds, they have come down.
also, same as barclays. scaled-down investment banks, focus on retail. it seems to be paying off. it too sets aside 400 million pounds against a foreign exchange investigation. , raising their% full-year profit target well ahead of all the industry players. iberia, ith airways, is well outperforming the industry. , doesn't seem to be doing too well. off by 2%. you know the brands. they missed their jump. >> just want to bring you some breaking news. we had the 1-2 punch. one from the japanese banks. $1.2 trillion. they are reallocating assets into different assets.
let me give you the reallocation of that. japan's government pension investment fund now sets a foreign bonds target of 15%, a foreign stocks target of 25%. they also reduce the japanese 60% allocation to 35% from and they increase their target fromapanese stocks to 25% 12%. some slight deviations on the actual deviation limit. we can break that down later. really in line with a lot of reports. the other punch, of course, the bank of japan and their surprise stimulus. we were talking about it earlier in the week. as the fed put an end to qe, would mario draghi cake up the backdrop? governor kuroda is certainly doing more of the heavy lifting now. let's bring in a special guest, global head of equities
derivatives strategy at bnp paribas. thanks for coming in. busy, busy morning. let's start with the pension investment fund. no big surprises there. is this going to change anything for the fundamentals of the japanese economy? whack's it is not so much that it changes the fundamentals directly. this will be implemented over several years. because a lot of that money is targeted to the new 400 index, there is incentives to keep reproving -- improving return on equity. the government is also supporting that with tax changes. they support closing down lossmaking businesses and reallocating that capital, which is important. we get the fact that both of these announcements from the bank of japan probably isn't a coincidence. there is a lot of coordinated policy in japan. we could have had both of these announcements four months ago.
the fact that we are getting them now is almost a surprise. to me about how these moves are coordinated and what they mean for each other. perhaps the government pension investment fund just needed to get out of the bank of japan's way, to make assets available to buy. certainly one of the consequences of being everywhere is the crowding out of private investment. in europe, the ecb purchasing asset-backed securities and providing financing to the banks means it is difficult to buy certain fixed and some -- fixed income securities. in japan, the policy is about trying to beat the potential that you reach full employment and you get an inflation problem. before you get the structural things necessary for growth. it needs to be coordinated. >> we will talk about the trades after the break. i want to get through the politics.
kuroda says it has nothing to do with the fed winding down qe, nothing to do with the sales tax hike. how coordinated is this within japan? abe wants to boost the sales tax. is this related? >> japan does have a very coordinated response. are steps of policies to continue with that momentum. of bonds ton out buy when they get uncontrolled depreciation. that may worsen as japan approaches full employment. so they have got a window here to try to push things along further and get momentum going before they run into more obstacles. of asian team have targets 16,000 for year-end and 20,000 the year after.
stimulus from the bank of japan, stocks soar, the yen down. with a 5-4 japan vote. this wasn't unanimous, to boost assets higher. joining us now with more is really live from tokyo. not a unanimous decision, but a big surprise that they have done this the way they have. >> absolutely. it is clearly related to two events. you mentioned for tailoring. the other issue was inflation numbers. thatnk kuroda has realized expectations of reduced to present inflation is wildly optimistic. when you look at some of the prices here, inc. are moving in the opposite direction. i wouldn't call this a display of panic, but it is already obtained to the world, we are on
this. here inrecognition tokyo at the nymex is not working as hoped. cs is not working as hoped. what worries me a little bit is that we are still treating the symptoms of the problem, not the underlying sickness. the need for greater consumer demand, for companies to increase wages. we are not getting anything from tokyo to create the cycle that will produce sustainable growth. the question is, what do we do next to sustain the sugar high? >> talk to me about the politics. in the last month or so, it sounded like officials in japan were leaning against a weaker yen. a lot of people would talk about that and say it could be one of the reasons the bank of japan would hold off stimulus. how political was this decision?
kurodaany ways, i think knows that his job is on the line. if he doesn't pose -- produce inflation. there is this interesting debate in tokyo. this time around, in some ways it is hurting some sectors of the economy. it is making consumers feel less wealthy. it is making older consumers feel less wealthy. in some ways, it is backfiring. developing very nation view of currencies. there is a bit of a dark side to that. i don't know if this is engineered to weaken the yen. saying,the boj's way of we understand, give us more time. what i am waiting for now is prime minister abe to come forward. that was the important part of abenomics, to loosen labor markets, to empower women, to make japan more innovative and
entrepreneurial. we see no action. what we saw today is a lot of being -- a lot of money being pumped into markets. we haven't seen steps to make the economy more competitive. it is good news in the short run. what happens next month? the monetary policy side of things always the easiest part. the reform, that is more difficult. thanks for joining us this morning from tokyo. jerry fowler is still with us. back to thet to get government pension investment fund reallocation in japan. no big surprise on the domestic side of things, but perhaps a bigger shift to investing abroad if you are looking at overseas shares. foreign debt, 15% from 11%. we can bring up italian debt, spanish debt. little bit of qe
for europe as well? >> it might well be. the ecb might to join next year. the japanese investors, for decades, have been good foreign investors. one of the negative consequences of this sort of policy is that retail investors might be more encouraged to get their money offshore. to some extent, that is the same in europe. if the ecb moves to a looser policy, this dollar strength story may actually look a lot like 1998, where you have a russian debt crisis. followed by an and or miss boom in the dollar and dollar assets. start to putors all their money into u.s. assets, which helps the dollar. the fact that the s&p 500 was up 1.2 percent is also telling. >> talk to me about european assets. the trend has been short yen
come along nikkei. in europe, that is not what happens. >> the ecb hasn't done enough area while the euro has come it might be worth 5% to some of the exporters. you can see the impact of that. global exporters are outperforming the smaller caps in the periphery. but they are all down because what is trumping the currency weakness is the massive reduction in expectation inflation. -- inflation expectations. if that is implied to be a 1% decrease in nominal gdp growth, that translates to 20% lower earnings profile. that is trumping the currency movement at the moment. the moment the ecb does something credible, you get a variable upswing in european growth which will come through very quickly. >> the move in the five year, is
that one of two things or both? is that questioning the health of the european economy or questioning the credibility of the ecb? that move has happened since mario draghi went to jackson hole. >> it is a combination of both. that is five-year inflation which has come down significantly as well. the nominal yields have also come down because growth is lower. the last six months have been a tough time. expectations have been declining. we are starting to see some positive news on the growth side of things. someis potentially where of the fiscal stimulus packages might help. haven't got their credibility back in terms of making sure they stop that downward spin. tradingome up with strategy so you can help us here. treasury yields, it was thought we would get higher yields and lower u.s. stocks.
go higher in the u.s. from here considering everything going on globally? >> so far, growth suggests they are far too low, yields. you have nominal gdp expectations ranging between 4% and 5% and yet you have got the two year yield -- sorry, the 10 year yield at 4.2. they are still very low. so either the growth assumptions need to come down to meet the reality, or the bond markets are not putting enough faith in the growth recovery in the u.s. if either of those two converge, it is going to be bad. the best case scenario for equities in the u.s. is that you get yields going up because growth is strong and that is enough to keep equities supported. equities will do quite well in that environment. you get a significant contraction of growth expectations or a sharp rise in
yields. >> let's wrap everything up. a lot of people talk about kuroda. everyone will be looking at mario draghi, wondering whether he can do the same. when you look at a bank like the making thek of japan nikkei 400 eligible for purchases, the ecb is never going to be the bank of japan. >> they don't seem to be heading in that direction. who knows where the next central bank will be to buy equities? certainly, there is a lot of potential currency volatility out of these policies. but they are necessary policies. gaps,we close these europe still has a very large output gap, until these gaps get consistent inflation, then we have got a risk that these policies continue to expand. >> fascinating morning.
we could talk forever about the central banks but we will save that for another time. as we head to the break, let's check in on a couple of banks. b.n.p. paribas open's to 11% boost in profit. rbs also posted its first third-quarter profit in years. we will bring you more on those later. stocks are up across the board. ♪
." i'm jonathan ferro live from london. let's bring you up to speed with some companies on the move. ab inbev third-quarter profits fell short of analyst estimates. adjusted earnings rose just 1.3%. analysts had been expecting 7% growth. the company said volume fell more than 2.5%. 40% of that decline coming from europe. shares of starbucks fell as much as 5.5% last night after the coffee chain posted sales that missed analyst estimates. same-store sales rose 5%. theysts were expecting figure to rise on the back of expanded offerings like the pumpkin spice latte in the u.s. give it a couple of days. sony posted a narrower than expected loss in the second quarter. helpg demand for the ps4 to limit the impact.
sony maintains its forecast for its full-year net loss of more than $2 billion. british airways and iberia owner iag released earnings figures this morning. third-quarter profit missed estimates. the outlook could be brighter. here with more is caroline hyde. let's start with the numbers. missed, theyy they are up 31%. still strong. when you compare it to yesterday, deutsche lufthansa announcing its profit warning. when you think of air france, profits slumped by 60% on the back of its strikes. this is the outperform or when it comes to airlines. ryanair is the only company year to date whose shares are .utperforming what is impressive is the full-year forecast. now they see full-year profits climbing anywhere up to 77% this year. there and this
is all about willie walsh getting a grip of the situation. air france, don't you left on the coming under the concerns of strike actions. lufthanzae lef coming under the concerns of strike actions. >> is that why he is beating the industry? just picking up the slack being left around by the likes of air france? >> picking up the slack, adding capacity, but also discipline. jobs over at3000 iberia because of the economy. this is now reaping rewards when it comes to efficiency. per employee, they are getting 11% more out of each employee. they are managing to push their workers harder. scrapping
worst-performing operations. they are being pretty brutal about it. when it comes to long-haul flights to america, they are adding. they are able to invest in new, more efficient planes. when you look at their costs, fuel costs are falling because of oil price, but nonfuel price is down. >> the fears about ebola, not really hitting the bottom line. >> not even mentioned in these earnings. he spoke about it in america and said ebola is not impacting us in any way. they had to shut their routes to sierra leone and liberia, but n't onaid that was concern of spreading of the disease, it was on demand. it doesn't seem to be hitting the bottom line. >> one of the stocks to watch this morning. up 2.8%.
>> welcome back. i am jonathan ferro at bloomberg's european headquarters in london. this is what the market looks like right now. the ftse here in london up 1%. the dax up by 160 points. the bank of japan boosts stimulus. we are talking about qe3. we are talking about qe forever as the bank of japan boosts stimulus again. we will break down the car and -- the foreign currency moves. >> earnings, earnings, earnings, green, green, green. bnp paribas up by 2.5%.
earnings at france's biggest bank beat expectations today, rising by 11%. provisionsloss falling 9.2% on the quarter. corporate and investment bank pretax profit up by 19%. iag, the parent company of british airways and iberia, third-quarter earnings up by 30% , held by increased capacity and reduced costs. ba expanding. strong north atlantic demand. slashing jobs as well. and routes. iberia is seeking a 1.8 billion euro operating profit by 2015. full year earnings will be 550 million euros. 600 million euros higher than .ast year's 770 million euros
by 3%s why shares are up today. rbs, third-quarter profit beating expectations even though it set aside 400 alien pounds because of a current -- 400 million pounds because of a currency rigging probe. first profit in the third quarter in years. the chief executive cutting back investment banking. he focuses on domestic company or's to reverse -- customers to reverse six straight annual losses. has rbs begun to turn the corner? maybe. shares are up i 1.5%. >> stocks are up everywhere. we will break it all down for you. here are the top headlines right now. the bank of japan unexpectedly boasted monetary easing this morning in the first policy change since april of last year. the central bank's board voted
on an ¥80 trillion expansion of the monetary base. the moves come the same week the federal reserve ended their qe program. stocks in tokyo up, the yen down. more than 1.5% against the dollar, 1.9% on my screen right now. setia's central bank also to raise interest rate for the fourth time this year to combat the currency run that is stoking inflation. the bank of russia will probably hike its key rate to 8.5% from 8%. the announcement will come at 1:30 local time in moscow. staying in russia, the nation agreed to restore national gas -- natural gas exports to ukraine. supplies were halted in june. attempted to avoid a winter fuel crisis. russia says it may resume
deliveries within 48 hours. we will get october inflation data for the eurozone at 10:00 london time. consensus is a rate of 0.4%. inflation in germany disappointed yesterday. the lowest reading since may. speculation that the number this morning could come below the current 0.3%. let's ask hans neck owes. yesterday's german number could be setting us up for a disappointment this morning. >> that is the right way to put it. yesterday, the estimate was for german inflation to come in at 0.7%. -- excuse me, 0.9%. it came in at 0.7%. all the expectations we had yesterday don't have this disappointing german number factored in. we could get something today below 0.3%. whenever we have a situation
where we have what we can classify as bad news on the inflation front, it will start convincing potential german central bankers that maybe they need to open the door to quantitative easing. from my conversations with officials in frankfurt, that doesn't seem to jive with reality. one was talking about her views on quantitative easing. she is fine with interest rates changing. she is fine with liquidity injections. she still has a big concern. n, until that dynamic changes, all the talk about quantitative easing may be missing the point. inflation may on be missing the point. the conversation should be focused on doing more asset purchases. >> when you look at domestic politics within germany, still a
solid labor market. angela merkel still has a solid approval rating. unemployment outside of europe is something different. >> we are expecting unemployment rates to stay unchanged pan-european-wide. in germany, we had better numbers than expected. 22,000 jobs. unemployment here is 6.7%. you have this strange dynamic. we should be clear on germany in the economy. there is some quirky data. the eco-number really disappointed. the jobless claims and the unemployment rate seem to be moving on the upside. it is hard to figure out what is going on. politically, the situation is the same. europe needs to make structural reforms before germany spends more. >> thanks, plenty to discuss here.
our next guest thinks there are risks of an undershoot in today's eurozone data. ppi,ad of an increase of we may see a dip to 0.2%. joining us now is the european head of global markets research at bank of tokyo. great day to have you here. we can talk about europe, we can talk about japan. let's start with euro-yen. we are looking at what the government pension fund is doing. if they are boosting foreign holdings, do they have to buy the euros? competition, the breakdown shows that we are talking about the jgb target being reduced. the current allocation as of the middle of the year is around 54%. you are talking nearly a 20% drop in jgb holdings, which
according to our calculations equates to a bit over 20 trillion, half going to domestic stocks, half going abroad. certainly, there is a scope for a notable capital outflow. other public sector entities as well. if they see the public sector flows going that way, you would imagine that could help the private sector. >> how significant is that story for the euro? the ecb have been fighting that for a number of years. does this have enough behind it to create that kind of theme again? flex in terms of flows into europe? had a massive impact on capital flows into europe. we calculated until the most recent data available. about 860 billion euros worth of capital inflows since omt
was announced. i think for now, given the fears over growth, even with the ecb is doing, that kind of capital story has moved away. improves, that though, i'm sure some of that money will be destined for europe as well. dollar-yen, a lot of you will get excited about that. how high do you see? >> it got to 148. that is when the japanese intervened to buy. we are some distance away from that, but the move has been very substantial. if you go back to the last boj inouncement, we had a jump dollar-yen, from 93 up to 100. that was a very well-telegraphed policy step.
it was more aggressive than markets expected. today's move is completely on telegraphed. have't think many people this position on board. that makes me think that perhaps we could see another substantial move over the short term. about thee skepticism long-term impact. how high could this go? if you listen to the politicians and officials, if i listen to them, i would be buying the yen. sentmorning, they dollar-yen through 1.10 again. >> we were discussing that rhetoric. media-driven. what we argued is, we should be watching what the japanese authorities are doing, not what they are saying. if you have a qe program that
has resulted in assets on the balance sheet being over 50% of and potentially to go to 75%, that is what we focus on. havequickly, on energy, we a 25% drop in crude oil. i think kuroda has grasped this opportunity. we are getting imported dis-inflationary pressures coming into japan. dollar-yen hasn't moved like crude oil. there is that window in terms of the net impact might not be as damaging to the government on the back of this move. >> is there a lesson here for actively beene pushing down the euro? if you look at what the bank of doing, it hasn't worked. you strip out the sales tax hike and look at inflation, it is at 1%. it just has not worked. is there a message for the ecb?
>> i think it is premature to be saying it hasn't worked. if you go back to the 20 years since the bubble has burst in japan, i would say we are at the moment with the best potential and the biggest steps taken by the boj and the government to try and change the circumstances. around 10% -- of 1% for around 10 years, to get to mild inflation, i would call a success. they haven't reached the target of 2%. that is the global standard. privately, i don't think they are too disappointed if we can see stable inflation at these levels. up,ust to wrap it dollar-yen, euro-dollar, where can we be in the next 12 months? >> i think obviously euro-yen can be volatile given the policy landscape, but generally
speaking we have a fairly flat profile on that. -- for thatng to other to advance on the yen and the euro. i think we could get there very quickly, then perhaps come back. maybe 1.15 is becoming too cautious of a target for 2015. >> shoot me an e-mail when you change that target. ny, pleasure to have you here. in the meantime, if you want to talk markets, equities across the board. the dollar higher against the japanese yen. so much to discuss. is back after this short break. ♪
>> welcome back to "on the move ." i'm jonathan ferro live in london. , they say profit rose 11% in the third quarter due to a rebound in fixed income trading. joining us now with the full story is caroline connan. you have been speaking to the cfo. was he happier this morning? confident thaty france's largest bank will be able to bounce back after this record u.s. fine. quarter, they saw 16%
increase in fixed income pretax profits. their provisions for loans decreased by more than 9%. bnp has passed the ecb stress test. their q1 capital ratio is 10.1%. asked the cfo whether the capital ratio was more stretched than what it seemed. >> 10.1% is -- you see what you get. it includes everything. it includes the findings of the review of the balance sheet. it includes the acquisition, and it includes the fine. basically, what we have now is 10.1, it includes everything. we feel very comfortable with it. one thing to look at will be
the italian unit called bnl. half of the provisions in this quarter came from the italian branches. caroline, i believe you also spoke to him about the massive u.s. fine. what kind of color did you get from him? >> one very important thing is that in addition to the $8.9 billion fine, they are also facing a dollar clearing ban in the u.s. starting in 2015. the bank is still waiting for a waiver from the u.s. department of labor to continue serving their clients. there are worries about the delay. he says that dollar clearing solutions will be found. >> with respect to the settlement, we agreed with u.s. authorities, there are settlements we have to work on. this will run on
several fronts. >> the remediation might run until 2016 according to the cfo. bnp paribas is also planning to hundred million euros to improve compliance. the cfo told me the situation does not prevent bnp paribas from making acquisitions, but that larger acquisitions might be complicated because of regulators who don't want to see very large banks. >> caroline, great work. thank you very much for joining us this morning. as we had to break, let's check on another bank that had a pretty tough week. nco deione other than ba monte paschi. up next, we will talk russia.
exports to ukraine. russian rebels stepped up attacks on kiev. more details from moscow. henry, at least we got a little bit of an agreement on this gas issue. >> yes, that's right. it has taken many weeks to reach it, but a major breakthrough. it looks as though this deal will stick until the end of march and it averts the threat of a supply disruption to europe. certainly a very important deal reached last night. >> in your mind, which side has made the most concessions here? agreed toussia has lower the amount of money which it is going to get in terms of payment of ukrainian debt. only around $3 billion when it has been asking for $5 billion. there has been a concession on
the russian side. on the other hand, the price being set for the gas for future deliveries is close to what russia had been asking. the european union ultimately is acting as a guarantor, so you can say that it was a difficult deal for all sides to swallow. in the end, they did reach an agreement. >> on the sanctions issue, the drumbeat for new sanctions seems to be a little quieter now. is there a possibility for more sanctions or do we face a scenario where there could be discussions to start raining them back? that it is a very early day at the moment and i doubt there will be any moves to ease sanctions. the european union has not publicly threatened any further sanctions, though there have been media reports citing
unnamed officials warning about that. spark for that could be elections which are due to be held this coming weekend in eastern ukraine in the separatist regions, which is in violation of ukrainian law. russia says it will recognize those results. the eu has been clear that it condemns this. as to whether new sanctions will follow, it is hard to predict. there are many countries in europe which would not want to go down that road. for the for seattle future, the current sanctions we have will remain in place. >> i have to finish by asking you about what this all means for the russian central-bank decision today. a huge move in the ruble yesterday, the strongest we have seen in a single day since 1999. today, we are seeing a reversal of that move. a lot of people still think they are going to tighten again.
>> yes, that is right. the expectations are for a rate rise. tryingtral bank has been to increase rates for several months because the ruble has been falling to record lows. inflation is accelerating. it is way above target. part of this can be provoked by the whole situation over ukraine. when russia imposed counter sanctions against european food products, that increased inflation. the ruble has been weakening in line with geopolitical risks. so the central-bank will certainly have to try and respond to that. how effective that will be remains to be seen. monetary policy alone cannot halt the slide in the ruble or curb inflation. >> henry, thank you very much